Will Zuma’s errors push SA to fix policy?

Jacob Zuma’s policy missteps in 2015 may be the catalyst the government needs to push key reforms, says economist Goolam Ballim.

Johannesburg - South African President Jacob Zuma’s policy missteps at the end of last year may be the catalyst that pushes the government to implement reforms needed to avert a credit rating downgrade to junk, according to Standard Bank.

“The events of December may have been the cathartic experience that South Africa needed,” Goolam Ballim, chief economist at Standard Bank, told reporters in Johannesburg on Tuesday. “It has dawned very heavily on the authorities that the risk of falling into sub-investment grade looms very perilously large.”

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The rand went into free-fall and bond yields soared after Zuma unexpectedly fired finance minister Nhlanhla Nene on December 9 and replaced him with a little-known lawmaker. He was forced to backtrack four days later, re-appointing Pravin Gordhan to a post that he’d occupied from 2009 to 2014.

Gordhan has pledged to stick to spending targets and restore confidence in the economy to help South Africa avoid a credit-rating cut. Standard & Poor’s put the nation’s BBB- rating on a negative outlook in December, indicating it may lower it to below investment grade.

“Rather ironically, December may have been the gift that gives us the political room for a credible, fiscally sustainable promise,” said Ballim. Gordhan’s budget speech on February 24 may result in a “level of fiscal rectitude that has not been entirely evident over the last four years”, allowing South Africa to avoid a credit downgrade, he said.

Business relations

Zuma’s reversal on his replacement of Nene in the face of pressure from some members of the ruling African National Congress is also a positive development, said Ballim. It shows “that there are limits to the extent of erosion in public finance management that will be tolerated and that the National Treasury will find allies for its cause”, he said.

Zuma is seeking to repair relations with businesses. He met with senior executives from companies including Barclays’ South African unit and Shoprite in Cape Town on Tuesday ahead of his State of the Nation Address on Thursday. Gordhan held talks with business leaders on January 29 on how to avoid a downgrade and boost investor sentiment.

“There’s vociferous dialogue taking place between business and government,” said Ballim. “For the first time in years, borne of sheer necessity, there is a level of conversation with regard to the right level of fiscal balance, alongside the private sector’s capacity to commit to investment in a growth cycle premised on reciprocal commitment.”

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